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CIRCULAR No

CIRCULAR No.7/1997/TT-NHNN7 OF DECEMBER 4, 1997 GUIDING THE IMPLEMENTATION OF DECISION No.802-TTg OF SEPTEMBER 24, 1997 OF THE PRIME MINISTER ON SOLVING THE EXISTING PROBLEMS IN OPENING LETTERS OF CREDIT

On September 24, 1997 the Prime Minister issued Decision No.802-TTg on solving the existing problems in opening letters of credit. In furtherance of Article 6 of the above-said Decision, the State Bank provides the following guidances:

1. Subject to this Circular are enterprises established and operating under Vietnamese law, which are allowed to engage in direct import and export and/or granted import permits by the Ministry of Trade and are entitled to open letters of credit for importing deferred payment goods.

2. An enterprise opening letters of credit for importing deferred payment goods, when the payment is due, shall have to fulfill its payment obligations towards the guarantor bank in accordance with the contract. If the enterprise has not been able to pay the debt or has already remitted money to the guarantor bank, such bank shall have to make full and timely payment to the concerned foreign party in accordance with the regulation of the State Bank on the opening of letters of credit for importing deferred payment goods and with international practices.

In cases where the enterprise has deposited money in Vietnam Dong to the bank for the purchase of foreign currency(ies) to pay to such bank, the exchange rate for the conversion of Vietnam Dong into the foreign currency(ies) shall comply with the agreement mentioned in the contract between the bank and the enterprise and conform with the current regulation on the management of foreign exchange.

3. The debt amount compulsorily acknowledged by the enterprise and paid by its guarantor bank shall not be accounted for in the enterprise's debt limitations at the bank.

4. Ordinary loans prescribed in Decision No.802-TTg are loans granted at the ceiling interest rates currently provided for by the Governor of the State Bank (the overdue interest rates shall not apply).

5. The debt amount already paid by the bank and compulsorily acknowledged by the enterprise shall be made an ordinary loan in the following cases:

a/ The enterprise importing equipment, supplies and goods in direct service of projects, which, due to objective reasons (like natural calamities, macro mechanism changes...) cannot make payment as scheduled, shall have to make detailed explanation with written certification by the functional agencies (for reasons of slow ground clearance or natural calamities the certification by the President of the provincial/municipal People's Committee or his/her authorized person is required; and for reasons of slow import tempo, the certification by the customs agency is required...); as for an enterprise managed by the Central Government, it must obtain certification from the parent agency and its reasons must be accepted by the guarantor bank. The guarantor bank and the debt acknowledging enterprise shall, at the same time, have to reach an agreement on a debt payment plan, based on the production cycle and time limit for recovery of ital from the enterprise and complete mortgage and pledge procedures (in cases where valid dossiers and security assets are unavailable or insufficient) so as to ensure the full debt recovery.

b/ For deferred payment import goods not yet sold or partly sold by the enterprise: The enterprise shall have to immediately pay the guarantor bank the amount of money corresponding the volume of sold goods (in case part of the import goods has been sold). The General Director (Director) of the bank shall, basing him/herself on the volume of goods not yet sold by the enterprise or the volume, value and saleability of the goods in stock, consider and decide the amount of money to be lent as a compulsory ordinary loan to the enterprise. The involved commercial bank shall determine the loan term according to the enterprise's production cycle and sale ability... and shall complete mortgage and pledge procedures (in cases where valid dossiers and assets for securities are unavailable or insufficient) so as to fully recover the debt.

c/ All objective causes of the loss of imported goods must be certified by functional agencies (depending on the nature and causes of the loss of goods, the enterprise shall make a report and submit it to a functional agency for certification). It shall also make detailed explanations for each specific case to the guarantor bank and the concerned agencies, such as the State Bank, the Ministry of Finance for a plan to deal with the loss of goods, which shall be submitted to the Prime Minister.

d/ The enterprise importing deferred payment goods under the Government's direction which suffers from losses due to the exchange rate fluctuation, shall have to make declaration for subsidies to cover such losses under the detailed guidances of the Ministry of Finance.

6. In case the enterprise has used ital for the import of deferred payment goods for wrong purposes, it shall have to recover the ital to pay the debt that the guarantor bank has paid for it. At the same time, it shall have to acknowledge such debt with the over-due interest rate. The guarantor bank shall take initiative in coordinating with the functional agencies to inventory and evaluate the imported goods, the mortgaged and pledged properties and the related properties so as to fill the procedures for debt claim and property auction under the provisions of law to recover the debt.

If the goods are lost due to embezzlement, the guarantor bank shall be entitled to propose the prosecution by the law enforcement agencies.

7. The responsibilities of organizations or individuals that guarantee an enterprise to open letters of credit or to re-purchase goods of the importing enterprise are determined as follows:

a/ In cases where the enterprise, which is guaranteed by an organization or individual to open deferred payment letters of credit, has no or not enough ability to pay the due debt, the guarantor organization or individual shall, on behalf of the enterprise, make payment to the bank so that the latter may pay debt to the foreign party on schedule. If the guarantor organization or individual fails to perform its/his/her obligations towards the bank, the bank shall be entitled to auction the properties in accordance with the provisions of law.

b/ In cases where an organization or individual provides guarantee for the enterprise to re-purchase goods of the importing enterprise, the importing enterprise shall have to make payment to the bank. If the enterprise which re-purchased the goods has no or not enough ability to make payment to the importing enterprise, the guarantor organization or individual shall have to pay debt on behalf of the enterprise which purchased the import goods. If the guarantor organization or individual fails to perform its/his/her obligations towards the importing enterprise, the provisions of law shall apply.

8. This Circular takes effect 15 days after its signing. The head of the Governor's Office; the heads of the units attached to the State Bank; the directors of the State Bank's branches in the provinces and cities directly under the Central Government; the General Directors and Directors of the commercial banks and investment and development banks shall have to implement this Circular.

For the Governor of the State Bank

Deputy Governor

LE DUC THUY